Insights from BCC Research

Global Crane Market: Major Players Wheeling, Dealing

In the global crane industry, the economic meltdown of last decade increased cost of production and decreased the profit margin of many companies. The sluggish demand also posed a great threat to the small players, and some companies were diminished from the high competition of the top players with technological advancements, mainly in higher capacity cranes. All of this spurred market consolidation of the companies, products, services through acquisitions, joint ventures and collaborations.

Just last month, US-based crane maker Terex received an unsolicited approach from Zoomlion to acquire the company at $30 a share. The all-cash offer would value the company at $3.2 billion and create one of the world’s biggest crane makers. Terex issued a statement stating it has entered into a confidentiality agreement with Zoomlion while it discusses the proposal with the Chinese construction-machinery company.

Terex’s confirmation about Zoomlion comes on the heels of its agreement with Finland's Konecranes Oyj last August. That transaction, according to Nasdaq.com, would create a company with a combined market value of $5.7 billion and annual revenues of more than $10 billion. Terex shareholders would get 60% of a new company to be called Konecranes Terex and based in Finland, the site noted.

Terex said while the board has not changed its recommendation to merge with Konecranes, it’s reviewing whether the Zoomlion offer is a better deal for its shareholders.

THE GLOBAL CRANE MARKET

The global crane market is broadly classified into three major types: mobile cranes, marine and port cranes, and fixed cranes, according to Aneesh Kumar, an analyst with BCC Research. In the global fixed crane market, there are two crane types: tower cranes and industrial cranes.

“Fixed cranes are fixed to a base and are not movable. These cranes find their application on various infrastructure activities and manufacturing sectors,” Kumar explains. “Among the major players in this market are Terex, Konecranes, and Zoomlion.”

MAJOR PLAYERS IN THE CRANE INDUSTRY

Terex. Connecticut-based Terex is a lifting and material handling solutions company has operations in over 80 countries, and has approximately 20,400 employees across all regions, including about 6,700 employees in the U.S. alone, according to Aneesh Kumar, an analyst with BCC Research.

“The proposed merger with Konecranes represents Terex’s endeavor to expand its presence in the factory crane market in recent years, including the acquisition of Germany’s Demag Cranes AG in 2011 for about $1.4 billion,” Kumar notes. “But Terex has struggled since the recession to consistently deliver higher sales and profit because of uneven demand for its equipment. The company has revamped its business portfolio by selling equipment lines and cutting costs to counter its end-market weakness.”

Kumar estimates that within three to four years after the merger, the new company is expected to generate more than $10 billion in sales with approximately $1 billion of operating profit.

Konecranes. The world’s largest supplier of industrial cranes, primarily operates in the lifting business. In June 2014, the company completed the acquisition of the remaining shares of Jiangsu Three Horses Crane Manufacture Co. Ltd., and now owns 100% of the company. Kumar reports that for 2014, Konecranes’s net sales declined by $118 million or 4%, to $2.7 billion from $2.8 billion in 2013, due to Business Area Equipment, as net sales in this segment were 8.1% lower than in 2013, particularly within process industries and, geographically, in most of the emerging markets.

Zoomlion. Founded in 1992, Zoomlion is a public company listed on both the Shanghai and Hong Kong Stock Exchanges. The company is engaged in the manufacturing and development of advanced technologies and equipment for infrastructure construction industry. The sixth largest equipment manufacturing company in the world, Zoomlion has subsidiaries in more than 40 countries, and employs nearly 30,000 people.

According to Nasdaq.com, Zoomlion's unsolicited offer appears to be the first time a Chinese construction-machinery company “has openly tried to buy a U.S. rival. Chinese machinery manufacturers have had limited success penetrating the U.S. market with their own brands. China's equipment market—the world's largest—is mired in a prolonged slump.”

Kumar says that China, the market leader in various type of cranes such as truck cranes, tower cranes and crawler cranes, saw its market share decline among these segments due to the slowdown experienced across several sectors of the Chinese economy. The overall sales in these segments are likely to decline in 2015, he says.

“China’s GDP growth rate of 7.4%, which was achieved by the Chinese economy in 2014, is still above the average growth rate achieved by the emerging economies,” Kumar explains. “Also, the policies adopted by the Chinese government to revive demand in the domestic market, including short-term quantitative easing, targeted adjustments of liquidity and spending limits on the state-owned companies, are expected to stimulate higher growth in the economy, due to which demand is expected to increase during the forecast period, however, only after 2016.”

Zoomlion’s bid for Terex is another in a series of recent M&A activity by the company. In August 2014, Zoomlion proposed to acquire a 60% equity interest of Chery Heavy Industry Co. Ltd. with an amount of $338 million. The acquisition was completed on Jan. 4, 2015. Zoomlion also acquired a 35% interest in Holland Raxtar, a leading company in the global elevator market in 2014.

According to Kumar, China was the biggest market in the tower crane market, and accounted for 64% of the overall market in units in 2014, with estimated sales of 35,300 units, valued at approximately $2.5 billion. However, due to sliding trend and low domestic demand for construction equipment, the region has lost its market share to the other emerging economies in the Asia-Pacific and South American regions, whereas market share of the developed economies have remained somewhat stable in the last two years.

In 2014, many tower manufacturers declined in revenues to varying degrees. Zoomlion saw its unit sales of construction machinery and tower cranes decline by 40% year-over-year (YOY) in the first nine months of 2014, both the segments have been key profit contributors to the company, in general.

GLOBAL CRANE MARKET OUTLOOK

In 2014, the overall crane market progressed positively. However, market growth still remains below the growth rate achieved by the overall market before the economic crisis of 2008, Kumar says. He adds that the downtrend experienced by the Chinese economy since 2012 negatively impacted the overall market, primarily due to its prominent position as the market leader in the construction equipment market.

“Overall sales in the mobile cranes market are estimated to increase during the forecast period. The overall growth was affected by the lower demand in the Chinese economy. However, due to stable EU recovery, reviving growth in the U.S. and stable demand in the several emerging economies, the overall demand remained flat compared with 2014,” he says. “During the forecast period, the demand is expected to increase significantly across all regions, including China, but only after 2016.”